Ukraine Government Authorizes Naftogaz Split

The Cabinet of Ministers of Ukraine approved a resolution to split Naftogaz’s transportation and storage operations into separate divisions and prohibit rental or privatization of the gas transportation system.

According to the plan, two new entities will be created, JSC “Main Gas Pipelines of Ukraine” (MGU) and JSC “Underground Gas Storage Facilities of Ukraine” (UGSF). Each entity will take over the respective assets of Ukrtransgaz, the Ukrainian transmission system operator (TSO). Their shares will be 100% owned by the state of Ukraine.

Naftogaz is a vertically integrated oil and gas company engaged in full-cycle operations in gas and oil field exploration and development, production, and exploratory drilling, gas and oil transport and storage, supply of natural gas, and liquefied petroleum gas to consumers.

On July 1, the Ukrainian government approved a bill that will split Naftogaz according to the provisions of the European Union Third Energy Package, which requires the separation of energy production, transportation, and sales, as Ukraine is a member of the European Energy Community.

The proposed plan suggests that gas transmission assets will be transferred to the new TSO only after the final arbitration award on the claims between Naftogaz and Gazprom currently under consideration by the Arbitration Institute of the Stockholm Chamber of Commerce.

Russian and Ukraine have been embroiled in a long-running dispute over the price and volume of Russian gas purchased by Ukraine. Russia had previously proposed setting up a joint venture between Naftogaz and Gazprom to run Ukraine’s gas transit system as part of a settlement of its gas price dispute with Moscow.

“Naftogaz welcomes the formal launch of the process of unbundling the gas transmission function from Naftogaz in line with the Third Energy Package. The approved action plan is a result of a compromise reached after a lasting discussion with government authorities, the Energy Community Secretariat, representatives of the World Bank and the EBRD. This decision will accelerate Ukraine’s full integration into the pan-European energy system,” said Andriy Kobolyev, CEO of Naftogaz.